Questioning common beliefs

[NVP]

Options present a good opportunity for a new trader

I'm not sure where this idea comes from that a new trader should go into options. These combine all the factors that a new trader should avoid. Highly leveraged, high transaction costs, complicated beyond your average joe's understanding, possibly unlimited risk, dangerously tempting to take on a position that will blow your account, i.e. writing options and receiving premium.

perhaps from anyone selling option courses ?

N

 

[Shakone]

Significant one directional movement usually associated with high volume. Yes, I'd suggest it trumps trend, particularly in day trading. Albeit that you could argue that it creates its own mini-trend whilst it's going on.

The direction part can be seen on a chart. What about poor old spot forex traders with no volume. What do you suggest for spotting this momentum?

 

[Shakone]

You need to have a risk:reward ratio of 1:3 to take a trade


Your stop is what should take you out of losing trades

 

[timsk]

You need to have a risk:reward ratio of 1:3 to take a trade

I've never understood the reward half of this equation, as it's based on where the trader hopes the trade will go - in advance of taking it. The only person I've ever 'met' who reckons to know what's gonna happen in advance is good ol' Socco'. The rest of us mere mortals have to accept that we've got no idea (for sure) which direction price will go - let alone how far it will go to provide the magic 3:1 ratio. Personally, I never think about reward and focus exclusively on how to minimise my risk.

Your stop is what should take you out of losing trades

For new traders, I think a hard stop in the market is the way to go. For more experienced traders, it's can be a bit of a blunt tool and may not be appropriate in all circumstances.
Tim.

 

[Shakone]

I've never understood the reward half of this equation, as it's based on where the trader hopes the trade will go - in advance of taking it. The only person I've ever 'met' who reckons to know what's gonna happen in advance is good ol' Socco'. The rest of us mere mortals have to accept that we've got no idea (for sure) which direction price will go - let alone how far it will go to provide the magic 3:1 ratio. Personally, I never think about reward and focus exclusively on how to minimise my risk.

It's quite limiting imo. You take what is on offer. If it is giving you 0.5R then that's what you get. If it's offering 10R then even better. This magical number 3 seems to come from nowhere and yet be accepted.

For new traders, I think a hard stop in the market is the way to go. For more experienced traders, it's can be a bit of a blunt tool and may not be appropriate in all circumstances.
Tim.

Always have a hard stop. But it isn't what should be exiting most of your losing trades is what I meant. Just because it is in place, doesn't mean we have rabbits in the headlights reaction until the stop has been hit.

 

[Mr. Charts]

1:2, 1:3 etc. is meaningless without knowing (or more precisely having good judgement about) the probability of risk v. reward, not to mention anticipated time scale.
Most people seem to think the probability is 50/50, which is self-delusionary.

 

[barjon]

The direction part can be seen on a chart. What about poor old spot forex traders with no volume. What do you suggest for spotting this momentum?

Just the pace of movement and the way it's moving - if it's moving fast with barely a pullback then there's probably a lot of activity going on anyway.

 

[darktone]

Position trades need big stops!

 

[darktone]

Just because it is in place, doesn't mean we have rabbits in the headlights reaction until the stop has been hit.

Yeah but most folks do though dont they! "Its still ok, its still ok...Phew that was close but its still got a chance!...ahh now its looking bet.... Ahhh KeerRaP!!!"
Stops orders = loss maximising limit orders!

 

[Forexmospherian]

Just the pace of movement and the way it's moving - if it's moving fast with barely a pullback then there's probably a lot of activity going on anyway.

Would agree with you there Barjon - i never use any volume indicators - ( I reckon they are BS - like the COT report ;-) )- but do use time windows and besides price action also price structure and ray lines etc on a tick or 1 minute chart

I rate the majority of forex brokers charts as inaccurate etc - but if it connected to the price you bought or sold at you have accept "clues" that normally cannot be altered to easily - ie time and movement ;-)


Regards

F

 

[Forexmospherian]

So no complaints about the manipulation of markets and stop hunting comment?

That's surprising.

Anyone got any others that you think are mistaken beliefs?

There is a lot to say on this matter.

The Currency market is the world's largest money market with over $4 trillion going through it per day

Because it is unregulated - nobody really know the true amounts and how much is actually illegal money laundered funds entering via dark pools and unregulated sources etc.

Price manipulation goes on every day - and it happens in some many different ways - not just by Brokers and individual Bank traders - but by the mafia and also the drug barons etc etc

This article below only just touches on the subject - but I will give you a lot more real cases - that are now finally be looked at by the various world wide regulators

http://en.wikipedia.org/wiki/Foreign_exchange_fraud

Setting false sentiment can hardly be said to be illegal - and similar cancelling massive orders just before they come into play - what's wrong with that ? - but some of the other tricks are really just pure robbery ;-)

More to follow - and with regards stop hunting - one of my favourite saying is every currency move - is an actual stop hunt ;-)

Profit come first - fundamentals and the countries economy comes well down the list ;-)

Regards

F

 

[Forexmospherian]

http://www.zerohedge.com/news/2013-...-manipulation-and-banging-close-comes-crude-a

When I first started currency trading in 2002 - I used to think my computer was bugged and that everytime I entered a trade with a buy - somebody was seeing my actions and selling double against me - resulting in me having a loss.

In essence that was happening to a certain degree because my Forex broker was able to see all it's clients orders and know were their stops were placed and so with the help of larger players could basically stop hunt.

From 2007 -8 things changed again and with the introduction of High Frequency Trading and also a new ways of entering the market - via ECN / STP Brokers - this meant your order was not supposed to be going through a dealing desk - but straight into the market - ie like a clean referee in a game of football - ie unbias to who might win ;-)

Unfortunately this just led to new ways of market manipulation and nowadays don't ever think when price is in a delicate important area - its just a tussle between 1000's or even millions of Bulls and against a similar number of Bear traders - N0 - the liquidity provider can always tip the balance into their favour

With the "big boys" having the money - and only 4 banks make up over 50% of the market size - they can set the false sentiment on any currency pair - ie they might decide to take the Euro down say 150 -350 pips in a week to get the rest of the market selling - before using some excuse for them to buy like mad and put it back up 400 pips in just 2 or 3 days

Remember - the banks and large funds - need traders to lose for them to win and make money

With the help of large HFT players - the market "noise" as changed and they can make a lot more money from smaller investments. It also makes it more difficult for manual chart traders to trade profitable and encourages them to increase their stop sizes to handle all this "random noise" that many look upon as too risky to trade.

The new problem over the last three years is now all the new unregulated players who unfortunately might not be legal.

If they can get their dirty money into the currency market - they can make it clean again - and of course - do the banks care ? - They don't even seem to know? ;-) - see below


http://www.forbes.com/sites/timwors...ine-and-the-somalian-cost-of-bank-regulation/


Conclusion - with the largest money market in the world and it being unregulated - do you honestly think all and sundry will play fair ?

Should you be worried about trading Forex ?

No - not at all - as long as you are not playing with a multi million capital account - your $5k or $50K account should survive - that is until you start taking advice and listening to the commercial world on how you should trade it ;-)) lol

 

[Shakone]

http://www.zerohedge.com/news/2013-...-manipulation-and-banging-close-comes-crude-a

When I first started currency trading in 2002 - I used to think my computer was bugged and that everytime I entered a trade with a buy - somebody was seeing my actions and selling double against me - resulting in me having a loss.

In essence that was happening to a certain degree because my Forex broker was able to see all it's clients orders and know were their stops were placed and so with the help of larger players could basically stop hunt.

From 2007 -8 things changed again and with the introduction of High Frequency Trading and also a new ways of entering the market - via ECN / STP Brokers - this meant your order was not supposed to be going through a dealing desk - but straight into the market - ie like a clean referee in a game of football - ie unbias to who might win ;-)

Unfortunately this just led to new ways of market manipulation and nowadays don't ever think when price is in a delicate important area - its just a tussle between 1000's or even millions of Bulls and against a similar number of Bear traders - N0 - the liquidity provider can always tip the balance into their favour

With the "big boys" having the money - and only 4 banks make up over 50% of the market size - they can set the false sentiment on any currency pair - ie they might decide to take the Euro down say 150 -350 pips in a week to get the rest of the market selling - before using some excuse for them to buy like mad and put it back up 400 pips in just 2 or 3 days

Remember - the banks and large funds - need traders to lose for them to win and make money

With the help of large HFT players - the market "noise" as changed and they can make a lot more money from smaller investments. It also makes it more difficult for manual chart traders to trade profitable and encourages them to increase their stop sizes to handle all this "random noise" that many look upon as too risky to trade.

The new problem over the last three years is now all the new unregulated players who unfortunately might not be legal.

If they can get their dirty money into the currency market - they can make it clean again - and of course - do the banks care ? - They don't even seem to know? ;-) - see below


http://www.forbes.com/sites/timwors...ine-and-the-somalian-cost-of-bank-regulation/


Conclusion - with the largest money market in the world and it being unregulated - do you honestly think all and sundry will play fair ?

Should you be worried about trading Forex ?

No - not at all - as long as you are not playing with a multi million capital account - your $5k or $50K account should survive - that is until you start taking advice and listening to the commercial world on how you should trade it ;-)) lol

Good to have your views FMosph.

I believe it is a mistake to think your stop is being hunted. If stop hunting occurs, it is not for your stop. It would only make sense to stop hunt a large position, or a herd of positions. So anyone who thinks the evil they have taken their stop is either kidding themselves, with some dodgy cyprus broker or is putting it in an obvious position with a herd of other obvious people. It cannot make sense that they come for your stop, when you can move it around at will.

On market manipulation, I think you need to be aware of what it takes to move the market and the consequences. Here is what Paul Tudor Jones had to say on it:

What is the most prominent fallacy in the public's perception about markets?
That markets can be manipulated. That there is some group on Wall Street that controls price action
in the markets. I can go into any market and create a stir for a day or two, maybe even a week. If I
go into a market at just the right moment, by giving it a little gas on the upside, I can create the
illusion of a bull market. But, unless the market is really sound, the second I stop buying, the price
is going to come right down. You can open the most beautiful Saks Fifth Avenue in Anchorage,
Alaska, with a wonderful summer menswear department, but unless somebody wants to buy the
clothes, you will go broke.

If you believe the markets are always manipulated you will end up not trusting what you see, not trusting what price is doing, ignoring clear facts. Then isn't it more likely that you will be prone to wrong decisions or might have a tendency to be contrarian or add to a loser because the move is 'false'?

In my view, manipulating the markets is either a losing proposition for the manipulator or will have to be done in a very clever and skilled way to be hidden and timed correctly, and the latter is more skilled operating than manipulation.


I'd also suggest that you read Reminiscences of a Stock Operator and his views on manipulation both when he tried to move the market and lost money because the market wasn't ready to move, and his views on general underlying conditions and sentiment. I'm seeing more and more in this book as time goes on.

 

[robster970]

Nice thread this.

 

[Forexmospherian]

Good to have your views FMosph.

I believe it is a mistake to think your stop is being hunted. If stop hunting occurs, it is not for your stop. It would only make sense to stop hunt a large position, or a herd of positions. So anyone who thinks the evil they have taken their stop is either kidding themselves, with some dodgy cyprus broker or is putting it in an obvious position with a herd of other obvious people. It cannot make sense that they come for your stop, when you can move it around at will.

On market manipulation, I think you need to be aware of what it takes to move the market and the consequences. Here is what Paul Tudor Jones had to say on it:



If you believe the markets are always manipulated you will end up not trusting what you see, not trusting what price is doing, ignoring clear facts. Then isn't it more likely that you will be prone to wrong decisions or might have a tendency to be contrarian or add to a loser because the move is 'false'?

In my view, manipulating the markets is either a losing proposition for the manipulator or will have to be done in a very clever and skilled way to be hidden and timed correctly, and the latter is more skilled operating than manipulation.


I'd also suggest that you read Reminiscences of a Stock Operator and his views on manipulation both when he tried to move the market and lost money because the market wasn't ready to move, and his views on general underlying conditions and sentiment. I'm seeing more and more in this book as time goes on.

Hi Shakone

Thank you for your comments and a great reply

I have to be very careful with what I say here - but will try and remain totally rational.

First of all with regards to Paul Tudor Jones - I have great respect for that guy and have followed many of his articles and ideas. ( he's mY age as well and i always try and buy and sell on turns as another one of his views)

In reality - he has to say that about manipulation ;-) and I would be amazed if he had been totally honest ;-).

With no disrespect to the guy who is worth many billions and so therefore far far more successful ( in money terms than me) -he is loyal to his industry.

Unfortunately, I just cannot be so kind about the infamous Jessie Livermore - a guy who after all committed suicide and lost as much as he made. I do have sorrow for people like that - as life does have many highs and lows and at times - we all go through them etc.

I think Jessie has done more damage to modern day traders than help - it like comparing "flat earth" believers with what we know today

In Jessies time - it was pidgeon post - no internet - no HFT - no world wide crooked organisations - trading was just totally different .

For me you just cannot compare his thoughts and views with today

OK there will always be some similarities - ie buying at low price and selling at a high price - but even though I know all about Jessie - he is just not on my radar and unfortunately is at least 70 yrs out of date ( no I am not being awful - just trying to explain why I discount him out the equation).

I will when I have some more time go into a lot more detail of the commercial world manipulation methods in the forex market.

As you quite rightly say about stops - if my stop is say at 1.3510 on the EU and if price went there and stopped me out - I might only lose say $500 or $1k.

Meanwhile 20k other traders might have stops within 5 pips of there and they in total might only be worth say $100k.

But 2 or 3 small hedge funds with similar stops at that price area - might lose say 2 - 4 million and so that's then a lot of money - worth taking off the table.

The market makers expect traders to place stops at various areas - and so they have to be targeted. PA is like water in motion - instead of finding the holes or cracks to leak through - it finds the stops to grab ;-))

Hope this explains more of my thinking etc and will explain more later

So many other interesting beliefs you have come up with as well I hope to time to comment on as well -

Regards #

F

 

[Shakone]

Hi Shakone

Thank you for your comments and a great reply

I have to be very careful with what I say here - but will try and remain totally rational.

First of all with regards to Paul Tudor Jones - I have great respect for that guy and have followed many of his articles and ideas. ( he's mY age as well and i always try and buy and sell on turns as another one of his views)

In reality - he has to say that about manipulation ;-) and I would be amazed if he had been totally honest ;-).

With no disrespect to the guy who is worth many billions and so therefore far far more successful ( in money terms than me) -he is loyal to his industry.

Unfortunately, I just cannot be so kind about the infamous Jessie Livermore - a guy who after all committed suicide and lost as much as he made. I do have sorrow for people like that - as life does have many highs and lows and at times - we all go through them etc.

I think Jessie has done more damage to modern day traders than help - it like comparing "flat earth" believers with what we know today

In Jessies time - it was pidgeon post - no internet - no HFT - no world wide crooked organisations - trading was just totally different .

For me you just cannot compare his thoughts and views with today

OK there will always be some similarities - ie buying at low price and selling at a high price - but even though I know all about Jessie - he is just not on my radar and unfortunately is at least 70 yrs out of date ( no I am not being awful - just trying to explain why I discount him out the equation).

I will when I have some more time go into a lot more detail of the commercial world manipulation methods in the forex market.

As you quite rightly say about stops - if my stop is say at 1.3510 on the EU and if price went there and stopped me out - I might only lose say $500 or $1k.

Meanwhile 20k other traders might have stops within 5 pips of there and they in total might only be worth say $100k.

But 2 or 3 small hedge funds with similar stops at that price area - might lose say 2 - 4 million and so that's then a lot of money - worth taking off the table.

The market makers expect traders to place stops at various areas - and so they have to be targeted. PA is like water in motion - instead of finding the holes or cracks to leak through - it finds the stops to grab ;-))

Hope this explains more of my thinking etc and will explain more later

So many other interesting beliefs you have come up with as well I hope to time to comment on as well -

Regards #

F

An interesting view F.

I don't share it regarding either Tudor-Jones or Livermore. I think plenty of traders have said the same thing, Rotter (the flipper) was another who said he couldn't go against the trend for long either. There are others. I also remember reading somewhere an interview in which a wizard explained that he and two others had a plan to manipulate a particular market. He later explained that two of them double-crossed the third and wiped his account. So I'm not convinced they are all protecting the industry or eachother.

As for Livermore, that is a tragic tale, he married the wrong woman and suffered from depression. For a long time I didn't see much in that book. Nowadays I couldn't disagree with you more about its relevance to today's trading.

But your statement about HFT gives me another thing we should question:

Humans can't compete with computers in trading (or indeed games of strategy)

There was a recent BBC article concerning chess and how the machines had won the war and the best human wouldn't even stand a chance now. It took decades for the computer to outplay the grandmasters, but by brute force it was done. What interested me more though was that the article mentioned another game, a variation of chess that was invented a few years ago. They have tournaments, and in this game humans are still the winners and the machines are nowhere near the standard required to win (yet), even after years. Of course they will dominate that game too eventually, but the key point is that when the rules of the game change, or the nature of the game, computers cannot adapt nearly as quickly as humans.

In trading sometimes the rules change, the regulation, the volatility, the participants and winning strategies, new products and markets are created etc. So there's still opportunity for humans if you can adapt to this, and imo always will be.

 

[counter_violent]

I'd also suggest that you read Reminiscences of a Stock Operator and his views on manipulation both when he tried to move the market and lost money because the market wasn't ready to move, and his views on general underlying conditions and sentiment. I'm seeing more and more in this book as time goes on.

For those on the thread who are only interested in Livermore's overall MONETARY success or failure, I suggest they are completely missing the point.

Livermore was nearing the end of his trading career before he committed pen to paper. His intention at this juncture was to impart his wisdom gained over many decades. It's also worth noting that he was a very tired man at the end. Tired men pass down to the next generation, for they know that their time is done.

Livermore always spoke about trading in terms of "markets and their condition", in other words, he may have been looking to trade an instrument, but within the context of the market as a whole.

He also said something along the lines of, "sitting out of the market", clearly he was referring to the times when "instruments", and by extension, "markets" were mixed. On reflection, One of his biggest regrets was, that he hadn't spent nearly enough time doing nothing, ie "sitting on his hands".

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My reasoning above is why I have massive issues with what I term "SINGLE INSTRUMENT MONKEYS" They may just as well be blindfolded and throw darts at a board, in terms of trade opportunity and outcome.

--------------------------------------------------------------------

Trading a single instrument in isolation based on it's chart and price action is a valid way to trade.

 

[Forexmospherian]

Trading a single instrument in isolation based on it's chart and price action is a valid way to trade.[/U]

Well - I can only relate to Forex trading - as that's all I have traded over 11 yrs via internet platform.

Forget the country - forget the fundamentals - forget the history - forget even what happened yesterday - Give my my charts on my time frames and i can trade it profitable from European Open to London close - profitably - day in day out and on and on and on - ie a bit like a duracell battery ;-)

With regards to throwing darts blindfolded - is that a joke ;-)

Yes for sure it applies to probably 80% of all traders with less than 3 years PA and price structure experience . Yes - i would need to see the day's calender ( only that day) to see what "gameplan" might be tried - I don't need the volumes - I don't need squawk box - I just need 2 -6 hrs over a 10 hr day to sit there any make money.

I will say though - I am no fortune teller - static analysis is dead analysis for me and I only want to trade in the "now" - not for 2 - 4 or 8 hrs ahead

Hope that helps completely dismiss that one ;-))

Regards

F

 

[robster970]

The trend is your friend

On the whole I buy into this premise for the following reasons only:

1) If you are trading with the direction of your chosen size of auction rotations you are likely to have a smaller adverse excursion from your point of entry and larger target. This will result in a higher reward to risk ratio for your trades over a meaningful sample size.

2) If you are trading against the direction of your chosen size of auction rotations you will likely have a greater adverse excursion from your point of entry and smaller target. This will result in a lower reward to risk ratio for your trades over a meaningful sample size.

Assuming you are going long or short on a coin toss, which do you think will net you the biggest gain/smallest loss (please delete depending on your skill level)?

Maths and market understanding init.

 

[counter_violent]

Well - I can only relate to Forex trading - as that's all I have traded over 11 yrs via internet platform.

Forget the country - forget the fundamentals - forget the history - forget even what happened yesterday - Give my my charts on my time frames and i can trade it profitable from European Open to London close - profitably - day in day out and on and on and on - ie a bit like a duracell battery ;-)

With regards to throwing darts blindfolded - is that a joke ;-)

Yes for sure it applies to probably 80% of all traders with less than 3 years PA and price structure experience . Yes - i would need to see the day's calender ( only that day) to see what "gameplan" might be tried - I don't need the volumes - I don't need squawk box - I just need 2 -6 hrs over a 10 hr day to sit there any make money.

I will say though - I am no fortune teller - static analysis is dead analysis for me and I only want to trade in the "now" - not for 2 - 4 or 8 hrs ahead

Hope that helps completely dismiss that one ;-))

Regards

F

Just had a quick look on your thread...seems very short on charts, but I did find one example...and you trade off these, ( erm )charts do you ?